Teaching Economic Dynamism

NEW YORK – Business leaders often argue that the widening education gap – the disparity between what young people learn and the skills that the job market demands – is a leading contributor to high unemployment and slow growth in many countries. For their part, governments seem convinced that the best way to close the gap is to increase the number of students pursuing degrees in the so-called “STEM” subjects (science, technology, engineering, and mathematics). Are they right?

The short answer is no. Indeed, the two main arguments underpinning claims that inadequate education is to blame for poor economic performance are weak, at best.

The first argument is that the lack of appropriately skilled workers is preventing companies from investing in more advanced equipment. But that is not how economic development usually works. Instead, firms begin to invest, and either workers respond to the possibility of higher wages by acquiring (at their own cost) the required skills, or firms provide their current and future employees with the relevant training.

The second argument is that it is increasingly difficult for the United States and other advanced countries to match the gains that developing countries have achieved by investing heavily in upgraded equipment, targeted higher education, and skills training. But, again, this contradicts traditional trade dynamics, in which one country’s success does not imply hardship for another.

In theory, of course, a simultaneous shift in several countries toward STEM-focused secondary and higher education – with large concomitant productivity gains – could diminish the competitiveness of an economy that made no such effort. But this scenario is highly unlikely, at least in the foreseeable future.

In fact, the proliferation of highly specialized universities in Europe has failed to buttress economic growth or employment. And the conversion of comprehensive universities into specialized institutes for science and technology in the Soviet Union and communist China did nothing to avert economic disaster in those economies. (China’s top universities now offer two-year programs that emulate the structure of American liberal arts colleges.)

But the case for STEM education is even more fundamentally flawed, because it treats an economy as an equation. According to this logic, job creation is a matter of slotting humans into identifiable opportunities, and economic growth is a matter of increasing the stock of human or physical capital, while exploiting scientific advances. This is a dark view of modern economies, and a depressing blueprint for the future.

To lay the foundation for a future based on ideas and invention, businesses and governments should consider how new products and methods emerged in some of history’s most innovative economies: the United Kingdom and the US as early as 1820, and Germany and France later in the nineteenth century. In these economies, innovation was powered not by global scientific progress, but by the population’s dynamism – their desire, capacity, and latitude to create – and willingness to allow the financial sector to steer them away from unpromising pursuits.

The fact that innovative ideas have arisen largely from the dynamism of people belies the conclusion that all economies require widespread STEM-focused education. Though a larger STEM base can benefit some economies, most advanced countries already have sufficient capacity in these fields to apply foreign technologies and engineer their own.

What economies need instead is a boost in dynamism. The problem is that the historically most innovative economies have lost much of their former dynamism, despite retaining an edge in social media and some high-technology sectors. And others – for example, Spain and the Netherlands – were never particularly dynamic. Meanwhile, the emerging economies that are supposed to be filling the gap – notably, China – are still falling short of the levels of innovation required to offset the declining benefits of technology transfer.

In other words, economies today lack the spirit of innovation. Labor markets do not need only more technical expertise; they require an increasing number of soft skills, like the ability to think imaginatively, develop creative solutions to complex challenges, and adapt to changing circumstances and new constraints.

That is what young people need from education. Specifically, students must be exposed to – and learn to appreciate – the modern values associated with individualism, which emerged toward the end of the Renaissance and continued to gain traction through the early twentieth century. Just as these values fueled dynamism in the past, they can reinvigorate economies today.

A necessary first step is to restore the humanities in high school and university curricula. Exposure to literature, philosophy, and history will inspire young people to seek a life of richness – one that includes making creative, innovative contributions to society. Indeed, studying the “canon” will do more than provide young people with a set of narrow skills; it will shape their perceptions, ambitions, and capabilities in new and invigorating ways. In my book Mass Flourishing, I cite some key figures who articulate and inspire modern values.

The humanities describe the ascent of the modern world. Countries worldwide can use the humanities to develop or revive the economies that drove this ascent, while helping individuals to lead more productive and fulfilling lives.

Edmund S. Phelps, a Nobel laureate in economics, is Director of Columbia University’s Center on Capitalism and Society and Dean of the Newhuadu Business School. He is the author of many books, including Rewarding Work and Mass Flourishing.

Copyright: Project Syndicate, 2014.
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